“Smith begins by
arguing that ‘domestick industry’ benefits from the ‘invisible hand’, so that
the individual with capital directs it to the use of domestic industry rather
than foreign industry, for reasons of self interest rather than public good. It
is only that this individual does not only think of the ‘revenue of society’,
not that he is completely unaware of it.”

Philosophers
normally are precise in their use of language. The above suggests laxity not
precision.

Smith’s
construction of his argument was that concern for the security of his capital
in foreign trade or carriage led the merchant to invest domestically, where
there were still risks, but lesser risks than when his capital was out of his
sight in the hands of other people of whom he knew less well than domestic
merchants (WN IV.II.paras 1- 8: pages 452-455). The merchant’s insecurity is
invisible; it is in his mind while making his decision, hence the
appropriateness of Smith’s use of the IH metaphor. The domestic industry does
not benefit from a mystical or otherwise “an invisible hand”; it benefits from actions arising from the “insecurity” of the merchant.

Smith then used
the metaphor of “an invisible hand” that metaphorically led the merchant to
invest locally. The IH metaphor refers to its grammatical object, the
merchant’s insecurity; it does not exist as a "magical" or otherwise mysterious entity of some kind in this
case, or in any other case of proper metaphoric use, independently of the object that
it “describes in a more striking and interesting manner” (Smith, 1763:
“Lectures On Rhetoric and Belles Lettres”, p age 29).

The consequence of
some merchants (but clearly not all domestic merchants because some other
merchants exported and imported goods to and from non-domestic partners)
investing locally instead of abroad was that domestic “revenues and employment”
were arithmetically higher than they would otherwise be if fewer merchants invested
“domestically” – arithmetically, the whole is the sum of its parts.

Smith
does not suggest that such insecure merchants are thinking, or need to think,
about the “public good”; they think only of the security of their capital
(mentioned six times, twice in paragraph 9, the IH paragraph).

That
so many economists and philosophers fail to see this connection is to my mind
astonishing.

2 Comments:

The invisible hand has been about benefiting. Adam Smith saw the invisible hand as domestically beneficial because of investor's insecurity about investing abroad. Because of that insecurity domestic industry flourished. However, today the invisible hand doesn't seem to be so insecure because investors invest all over the place, often to the detriment of the local economy.

airthIt was not the "invisible hand" that was beneficial. It was the insecurity of those merchants who decided because of their insecurity to invest domestically that was beneficial. Smith used the IH metaphor to express this in "a more striking and interesting manner". That's what metaphors do. The metaphor does not replace its object; it describes it. That insecurity did not make the domestick economy flourish on all occasions; it helped to raise "domestic revenue and employment" arithmeticlaly above what it otherwise would be, which could still be well below its potential. Many merchants did invest abroad - the entire early capital investment of pre-independence America came largely from Britain. This flow outwards reduced UK "domestic revenue and employment" from what it may have been if they had all stayed at home. However, international trade was beneficial to Britain, as Smith made clear. Commercial economies cannot grow beyond a point without international trade. "Today" there is no "invisible hand". There was no such entity in Smith's time. It was a grammatical figure of speech; nothing else.Gavin